2. Fringe Benefit Exclusion Rules

This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient's
pay.

The excluded benefits are not subject to federal income tax withholding. Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form
W-2.

This section discusses the exclusion rules for the following fringe benefits.

Accident and health benefits.

Achievement awards.

Adoption assistance.

Athletic facilities.

De minimis (minimal) benefits.

Dependent care assistance.

Educational assistance.

Employee discounts.

Employee stock options.

Employer-provided cell phones.

Group-term life insurance coverage.

Health savings accounts (HSAs).

Lodging on your business premises.

Meals.

Moving expense reimbursements.

No-additional-cost services.

Retirement planning services.

Transportation (commuting) benefits.

Tuition reduction.

Working condition benefits.

See Table 2-1, later, for an overview of the employment tax treatment of these
benefits.

Table 2-1.
Special Rules for Various Types of Fringe Benefits(For more information, see the full discussion in this section.)

Treatment Under Employment Taxes

Type of Fringe Benefit

Income Tax Withholding

Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of
$200,000)

Federal Unemployment (FUTA)

Accident and health benefits

Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement.

Exempt, except for certain payments to S corporation employees who are 2%
shareholders.

Exempt

Achievement awards

Exempt1
up to $1,600 for qualified plan awards ($400 for nonqualified awards).

Adoption assistance

Exempt1,3

Taxable

Taxable

Athletic facilities

Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated by the employer on premises owned or leased by the employer.

De minimis (minimal) benefits

Exempt

Exempt

Exempt

Dependent care assistance

Exempt3
up to certain limits, $5,000 ($2,500 for married employee filing separate
return).

Exempt3
if for undergraduate education (or graduate education if the employee performs
teaching or research activities).

Working condition benefits

Exempt

Exempt

Exempt

1
Exemption does not apply to S corporation employees who are 2% shareholders.

2
Exemption does not apply to certain highly compensated employees under a
self-insured plan that favors those employees.

3
Exemption does not apply to certain highly compensated employees under a program
that favors those employees.

4
Exemption does not apply to certain key employees under a plan that favors those
employees.

5
Exemption does not apply to services for tax preparation, accounting, legal, or
brokerage services.

6
If the employee receives a qualified bicycle commuting reimbursement in a
qualified bicycle commuting month, the employee cannot receive commuter highway
vehicle, transit pass, or qualified parking benefits in that same month.

7
You must include in your employee's wages the cost of group-term life insurance
beyond $50,000 worth of coverage, reduced by the amount the employee paid toward
the insurance. Report it as wages in boxes 1, 3, and 5 of the employee's Form
W-2. Also, show it in box 12 with code "C." The amount is subject to social
security and Medicare taxes, and you may, at your option, withhold federal
income tax.

Accident or health plan.

This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. The plan may be insured or noninsured and does not need to be in
writing.

Employee.

A former employee you maintain coverage for based on the employment
relationship.

A widow or widower of an individual who died while an employee.

A widow or widower of a retired employee.

For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or
control.

For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. See section 105(j) for
details.

Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2%
shareholder.

You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA)
taxes.

Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA
taxes.

If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA
taxes.

A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance
policy.

A highly compensated employee for this exception is any of the following individuals.

One of the five highest paid officers.

An employee who owns (directly or indirectly) more than 10% in value of the employer's
stock.

An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the
plan).

For more information on this exception, see section 105(h) of the Internal Revenue Code and its
regulations.

The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or
temporary.

Achievement Awards

This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business
Expenses.

Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2%
shareholder.

Exclusion from wages.

You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. The excludable annual amount is $1,600 ($400 for awards that are not "qualified plan awards"). See chapter 2 of Publication
535
for more information about the limit on deductions for employee achievement
awards.

To determine for 2015 whether an achievement award is a "qualified plan award" under the deduction rules described in Publication 535, treat any employee who received more than $115,000 in pay for 2014 as a highly compensated
employee.

If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts.

The part of the cost that is more than your allowable deduction (up to the value of the
awards).

The amount by which the value of the awards exceeds your allowable
deduction.

Adoption Assistance

An adoption assistance program is a separate written plan of an employer that meets all of the following
requirements.

It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining.

It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business.

You give reasonable notice of the plan to eligible employees.

Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses.

For this exclusion, a highly compensated employee for 2015 is an employee who meets either of the following tests.

The employee was a 5% owner at any time during the year or the preceding
year.

The employee received more than $115,000 in pay for the preceding
year.

You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding
year.

You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. For more information, see the Instructions for Form 8839, Qualified Adoption
Expenses.

You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. Use code "T" to identify this
amount.

Exception for S corporation shareholders.

For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, including using the benefit as a reduction in distributions to the 2%
shareholder.

Athletic Facilities

You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of
25.

On-premises facility.

The athletic facility must be located on premises you own or lease. It does not have to be located on your business premises. However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a
resort.

De Minimis (Minimal) Benefits

You can exclude the value of a
de minimis benefit you provide to an employee from the employee's wages. A
de minimis
benefit is any property or service you provide to an employee that has so little
value (taking into account how frequently you provide similar benefits to your
employees) that accounting for it would be unreasonable or administratively
impracticable. Cash and cash equivalent fringe benefits (for example, use of
gift card, charge card, or credit card), no matter how little, are never
excludable as a
de minimis benefit, except for overtime meal money or transportation fare.

Examples of
de minimis benefits include the following.

Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. See
Employer-Provided Cell Phones, later in this section, for details.

Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business
purposes.

Holiday gifts, other than cash, with a low fair market value.

Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than
$2,000.

Employee.

Dependent Care Assistance

This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a dependent care assistance program that covers only your employees. The services must be for a qualifying person's care and must be provided to allow the employee to work. These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. For more information, see
Qualifying Person Test and
Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses.

Exclusion from wages.

You can exclude the value of benefits you provide to an employee under a dependent care assistance program from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross
income.

An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. This limit is reduced to $2,500 for married employees filing separate
returns.

However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. Special rules apply to determine the earned income of a spouse who is either a student or not able to care for himself or herself. For more information on the earned income limit, see Publication
503.

You cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue
Code.

For this exclusion, a highly compensated employee for 2015 is an employee who meets either of the following tests.

The employee was a 5% owner at any time during the year or the preceding
year.

The employee received more than $115,000 in pay for the preceding
year.

You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding
year.

Form W-2.

Report the value of all dependent care assistance you provide to an employee under a dependent care assistance program in box 10 of the employee's Form W-2. Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee.

Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. In addition, it provides occasional on-site dependent care to its employees at no cost. Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. In addition, Emily used the on-site dependent care several times. The fair market value of the on-site care was $700. Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 flexible spending arrangement plus $700 on-site dependent care). Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that
amount.

Educational Assistance

This exclusion applies to educational assistance you provide to employees under an educational assistance program. The exclusion also applies to graduate level
courses.

Educational assistance means amounts you pay or incur for your employees' education expenses. These expenses generally include the cost of books, equipment, fees, supplies, and tuition. However, these expenses do not include the cost of a course or other education involving sports, games, or hobbies, unless the education:

Has a reasonable relationship to your business, or

Is required as part of a degree program.

Education expenses do not include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Nor do they include the cost of lodging, meals, or
transportation.

Educational assistance program.

An educational assistance program is a separate written plan that provides educational assistance only to your employees. The program qualifies only if all of the following tests are
met.

The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. To determine whether your program meets this test, do not consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith
bargaining.

The program does not provide more than 5% of its benefits during the year for shareholders or owners. A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your
business.

The program does not allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational
assistance.

You give reasonable notice of the program to eligible employees.

Your program can cover former employees if their employment is the reason for the
coverage.

For this exclusion, a highly compensated employee for 2015 is an employee who meets either of the following tests.

The employee was a 5% owner at any time during the year or the preceding
year.

The employee received more than $115,000 in pay for the preceding
year.

You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding
year.

If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Working condition benefits may be excluded from wages. Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. See
Working Condition Benefits, later, in this section.

Employee Discounts

This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or
bonds).

Exclusion from wages.

You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits.

For a discount on services, 20% of the price you charge nonemployee customers for the
service.

For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the
property.

Determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. To figure your gross profit percentage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property.

Employee Stock Options

Wages for social security, Medicare, and federal unemployment (FUTA) taxes do not include remuneration resulting from the exercise, after October 22, 2004, of an incentive stock option or an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stock purchase plan option or to a disposition of stock acquired by such
exercise.

Additionally, federal income tax withholding is not required on the income resulting from a disqualifying disposition of stock acquired by the exercise after October 22, 2004, of an incentive stock option or an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any qualifying disposition of the stock. The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before October 23, 2004, of an incentive stock option or an employee stock purchase plan option. However, the employer must report as income in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon a qualifying disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option.

An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code "V." See Regulations section
1.83-7.

An employee who transfers his or her interest in nonstatutory stock options to the employee's former spouse incident to a divorce is not required to include an amount in gross income upon the transfer. The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at
www.irs.gov/pub/irs-irbs/irb02-19.pdf. See Revenue Ruling 2004-60, 2004-24 I.R.B. 1051, available at
www.irs.gov/irb/2004-24_IRB/ar13.html.

For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related
regulations.

Employer-Provided Cell Phones

The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a
de minimis fringe benefit. For the rules relating to these types of benefits, see
De Minimis (Minimal) Benefits, earlier in this section, and
Working Condition Benefits, later in this section.

Noncompensatory business purposes.

You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Examples of substantial business reasons include the
employer's:

Need to contact the employee at all times for work-related emergencies,

Requirement that the employee be available to speak with clients at times when
the employee is away from the office, and

Need to speak with clients located in other time zones at times outside the employee's normal
workday.

You cannot exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an
employee.

It provides an amount of insurance to each employee based on a formula that prevents individual selection. This formula must use factors such as the employee's age, years of service, pay, or
position.

You provide it under a policy you directly or indirectly carry. Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. Determine the cost of the insurance, for this purpose, as explained under
Coverage over the limit, later.

Group-term life insurance does not include the following insurance.

Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits.

Life insurance on the life of your employee's spouse or dependent. However, you may be able to exclude the cost of this insurance from the employee's wages as a
de minimis benefit. See
De Minimis (Minimal) Benefits, earlier in this section.

Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2%
shareholder.

The 10-employee rule.

Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the
year.

For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. A permanent benefit is an economic value extending beyond one policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance
policy.

Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life
insurance.

Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met.

If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a
physical.

You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer
accepts.

You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. See Regulations section 1.79-1 for
details.

Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met.

You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to
you.

The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining
insurance.

Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee
gets.

To apply either exception, do not consider employees who were denied insurance for any of the following reasons.

They were 65 or older.

They customarily work 20 hours or less a week or 5 months or less in a calendar
year.

They have not been employed for the waiting period given in the policy. This waiting period cannot be more than 6
months.

Exclusion from wages.

You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an
employee.

You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Also, show it in box 12 with code "C." The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income
tax.

Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. You must prorate the cost from the table if less than a full month of coverage is
involved.

Table 2-2. Cost Per $1,000 of Protection For 1 Month

Age

Cost

Under 25

$ .05

25 through 29

.06

30 through 34

.08

35 through 39

.09

40 through 44

.10

45 through 49

.15

50 through 54

.23

55 through 59

.43

60 through 64

.66

65 through 69

1.27

70 and older

2.06

You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that
cost.

Example.

Tom's employer provides him with group-term life insurance coverage of $200,000. Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Tom's employer must include $170 in his wages. The $200,000 of insurance coverage is reduced by $50,000. The yearly cost of $150,000 of coverage is $270 ($.15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. The employer also enters $170 in box 12 with code
"C."

Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a
de minimis
fringe benefit if the face amount is not more than $2,000. If the face amount is
greater than $2,000, the dependent coverage may be excludible from income as a
de minimis
fringe benefit if the excess (if any) of the cost of insurance over the amount
the employee paid for it on an after-tax basis is so small that accounting for
it is unreasonable or administratively impracticable.

When group-term life insurance over $50,000 is provided to an employee (including retirees) after his or her termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with his or her tax return and is not collected by the employer. You are not required to collect those taxes. Use the table above to determine the amount of social security and Medicare taxes owed by the former employee for coverage provided after separation from service. Report those uncollected amounts separately in box 12 of Form W-2 using codes "M" and "N." See the General Instructions for Forms W-2 and W-3 and the Instructions for Form
941.

Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. This exception generally does not apply to church plans. When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. Include the cost in boxes 1, 3, and 5 of Form W-2. However, you do not have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an
employee.

For this purpose, the cost of the insurance is the greater of the following amounts.

The premiums you pay for the employee's insurance. See Regulations section 1.79-4T(Q&A 6) for more
information.

The cost you figure using Table 2-2.

For this exclusion, a key employee during 2015 is an employee or former employee who is one of the following individuals. See section 416(i) of the Internal Revenue Code for more
information.

An officer having annual pay of more than $170,000.

An individual who for 2015 was either of the following.

A 5% owner of your business.

A 1% owner of your business whose annual pay was more than
$150,000.

A former employee who was a key employee upon retirement or separation from service is also a key
employee.

Your plan does not favor key employees as to participation if at least one of the following is true.

It benefits at least 70% of your employees.

At least 85% of the participating employees are not key employees.

It benefits employees who qualify under a set of rules you set up that do not favor key
employees.

Your plan meets this participation test if it is part of a cafeteria plan (discussed in section 1) and it meets the participation test for those
plans.

When applying this test, do not consider employees who:

Have not completed 3 years of service,

Are part-time or seasonal,

Are nonresident aliens who receive no U.S. source earned income from you,
or

Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee
representatives.

Your plan does not favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their
pay.

Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in his or her wages. When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. Include the cost in boxes 1, 3, and 5 of Form W-2. However, you do not have to withhold federal income tax or pay federal unemployment tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder.

Health Savings Accounts

A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) will not give rise to a medical expense deduction on the individual's federal income tax return. For more information about HSAs, visit the Department of Treasury's website at
www.treasury.gov and enter "HSA" in the search box.

Eligibility.

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, or long-term care. For calendar year 2015, a qualifying HDHP must have a deductible of at least $1,300 for self-only coverage or $2,600 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,450 for self-only coverage and $12,900 for family
coverage.

There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a
contribution.

Exceptions.

An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. Also, an employee's participation in a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) generally disqualifies the individual (and employer) from making contributions to his or her HSA. However, an individual may qualify to participate in an HSA if he or she is participating in only a limited-purpose FSA or HRA or a post-deductible FSA. For more information, see
Other employee health plans in Publication
969.

Employer contributions.

Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. For 2015, you can contribute up to $3,350 for self-only coverage or $6,650 for family coverage to a qualified individual's
HSA.

The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. For two qualified individuals who are married to each other and who each are age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000 provided each spouse has a separate HSA. No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part
B.

Nondiscrimination rules.

Your contribution amount to an employee's HSA must be comparable for all
employees who have comparable coverage during the same period. Otherwise, there
will be an excise tax equal to 35% of the amount you contributed to all
employees' HSAs.

For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee has not established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section
54.4980G-4.

The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. A highly compensated employee for 2015 is an employee who meets either of the following
tests.

The employee was a 5% owner at any time during the year or the preceding
year.

The employee received more than $115,000 in pay for the preceding
year.

You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding
year.

Partnerships and S corporations.

Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and
circumstances.

Cafeteria plans.

You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. However, cafeteria plan nondiscrimination rules still apply. For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Contributions that favor lower-paid employees are not
prohibited.

Reporting requirements.

You must report your contributions to an employee's HSA in box 12 of Form W-2 using code "W." The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage
MSA.

On your business premises.

For this exclusion, your business premises is generally your employee's place of work. For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its
regulations.

For your convenience.

Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. This is true even if a law or an employment contract provides that the lodging is furnished as pay. However, a written statement that the lodging is furnished for your convenience is not
sufficient.

Condition of employment.

Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the
lodging.

It does not matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of
employment.

Example.

A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging from her wages because she is not required to live at the hospital to properly perform the duties of her
employment.

S corporation shareholders.

For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2%
shareholder.

De Minimis Meals

You can exclude any occasional meal you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. The exclusion applies, for example, to the following items.

Coffee, doughnuts, or soft drinks.

Occasional meals or meal money provided to enable an employee to work overtime. However, the exclusion does not apply to meal money figured on the basis of hours
worked.

Occasional parties or picnics for employees and their guests.

This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under
Meals on Your Business Premises, later.

If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. The 50% limit on deductions for the cost of meals does not apply. The deduction limit on meals is discussed in chapter 2 of Publication
535.

Exclusion from wages.

You cannot exclude from the wages of a highly compensated employee the value of a meal provided at an employer-operated eating facility that is not available on the same terms to one of the following groups.

All of your employees.

A group of employees defined under a reasonable classification you set up that does not favor highly compensated
employees.

For this exclusion, a highly compensated employee for 2015 is an employee who meets either of the following tests.

The employee was a 5% owner at any time during the year or the preceding
year.

The employee received more than $115,000 in pay for the preceding
year.

You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding
year.

On your business premises.

For your convenience.

Whether you furnish meals for your convenience as an employer depends on all the facts and circumstances. You furnish the meals to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. This is true even if a law or an employment contract provides that the meals are furnished as pay. However, a written statement that the meals are furnished for your convenience is not
sufficient.

If more than half of your employees who are furnished meals on your business premises are furnished the meals for your convenience, you can treat all meals you furnish to employees on your business premises as furnished for your
convenience.

Meals you furnish to a restaurant or other food service employee during, or immediately before or after, the employee's working hours are furnished for your convenience. For example, if a waitress works through the breakfast and lunch periods, you can exclude from her wages the value of the breakfast and lunch you furnish in your restaurant for each day she
works.

Example.

You operate a restaurant business. You furnish your employee, Carol, who is a waitress working 7:00 a.m. to 4:00 p.m., two meals during each workday. You encourage but do not require Carol to have her breakfast on the business premises before starting work. She must have her lunch on the premises. Since Carol is a food service employee and works during the normal breakfast and lunch periods, you can exclude from her wages the value of her breakfast and
lunch.

If you also allow Carol to have meals on your business premises without charge on her days off, you cannot exclude the value of those meals from her
wages.

Meals you furnish during working hours so an employee will be available for emergency calls during the meal period are furnished for your convenience. You must be able to show these emergency calls have occurred or can reasonably be expected to
occur.

Example.

A hospital maintains a cafeteria on its premises where all of its 230 employees may get meals at no charge during their working hours. The hospital must have 120 of its employees available for emergencies. Each of these 120 employees is, at times, called upon to perform services during the meal period. Although the hospital does not require these employees to remain on the premises, they rarely leave the hospital during their meal period. Since the hospital furnishes meals on its premises to its employees so that more than half of them are available for emergency calls during meal periods, the hospital can exclude the value of these meals from the wages of all of its
employees.

Meals you furnish during working hours are furnished for your convenience if the nature of your business restricts an employee to a short meal period (such as 30 or 45 minutes) and the employee cannot be expected to eat elsewhere in such a short time. For example, meals can qualify for this treatment if your peak work-load occurs during the normal lunch hour. However, they do not qualify if the reason for the short meal period is to allow the employee to leave earlier in the
day.

Example.

Frank is a bank teller who works from 9 a.m. to 5 p.m. The bank furnishes his lunch without charge in a cafeteria the bank maintains on its premises. The bank furnishes these meals to Frank to limit his lunch period to 30 minutes, since the bank's peak workload occurs during the normal lunch period. If Frank got his lunch elsewhere, it would take him much longer than 30 minutes and the bank strictly enforces the time limit. The bank can exclude the value of these meals from Frank's
wages.

Meals you furnish during working hours are furnished for your convenience if the employee could not otherwise eat proper meals within a reasonable period of time. For example, meals can qualify for this treatment if there are insufficient eating facilities near the place of
employment.

Meals you furnish to an employee immediately after working hours are furnished for your convenience if you would have furnished them during working hours for a substantial nonpay business reason but, because of the work duties, they were not eaten during working
hours.

Meals you furnish to promote goodwill, boost morale, or attract prospective employees are not considered furnished for your convenience. However, you may be able to exclude their value as discussed under
De Minimis Meals, earlier.

You generally cannot exclude from an employee's wages the value of meals you furnish on a day when the employee is not working. However, you can exclude these meals if they are furnished with lodging that is excluded from the employee's wages as discussed under
Lodging on Your Business Premises, earlier in this section.

S corporation shareholder-employee.

For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2%
shareholder.

Moving Expense Reimbursements

This exclusion applies to any amount you directly or indirectly give to an employee, (including services furnished in kind) as payment for, or reimbursement of, moving expenses. You must make the reimbursement under rules similar to those described in chapter 11 of Publication 535 for reimbursement of expenses for travel, meals, and entertainment under accountable
plans.

The exclusion applies only to reimbursement of moving expenses that the employee could deduct if he or she had paid or incurred them without reimbursement. However, it does not apply if the employee actually deducted the expenses in a previous
year.

Deductible moving expenses.

Moving household goods and personal effects from the former home to the new home,
and

Traveling (including lodging) from the former home to the new
home.

Deductible moving expenses do not include any expenses for meals and must meet both the distance test and the time test. The distance test is met if the new job location is at least 50 miles farther from the employee's old home than the old job location was. The time test is met if the employee works at least 39 weeks during the first 12 months after arriving in the general area of the new job
location.

For more information on deductible moving expenses, see Publication
521, Moving Expenses.

Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2%
shareholder.

Exclusion from wages.

Generally, you can exclude qualifying moving expense reimbursement you provide to an employee from the employee's wages. If you paid the reimbursement directly to the employee, report the amount in box 12 of Form W-2 with the code "P." Do not report payments to a third party for the employee's moving expenses or the value of moving services you provided in
kind.

No-Additional-Cost Services

This exclusion applies to a service you provide to an employee if it does not cause you to incur any substantial additional costs. The service must be offered to customers in the ordinary course of the line of business in which the employee performs substantial
services.

Generally, no-additional-cost services are excess capacity services, such as airline, bus, or train tickets; hotel rooms; or telephone services provided free or at a reduced price to employees working in those lines of
business.

Substantial additional costs.

To determine whether you incur substantial additional costs to provide a service to an employee, count any lost revenue as a cost. Do not reduce the costs you incur by any amount the employee pays for the service. You are considered to incur substantial additional costs if you or your employees spend a substantial amount of time in providing the service, even if the time spent would otherwise be idle or if the services are provided outside normal business
hours.

Reciprocal agreements.

A no-additional-cost service provided to your employee by an unrelated employer may qualify as a no-additional-cost service if all the following tests are
met.

The service is the same type of service generally provided to customers in both the line of business in which the employee works and the line of business in which the service is
provided.

You and the employer providing the service have a written reciprocal agreement under which a group of employees of each employer, all of whom perform substantial services in the same line of business, may receive no-additional-cost services from the other
employer.

Neither you nor the other employer incurs any substantial additional cost either in providing the service or because of the written
agreement.

Employee.

A widow or widower of a former employee who retired or left on
disability.

A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or
control.

A partner who performs services for a partnership.

Treat services you provide to the spouse or dependent child of an employee as provided to the employee. For this fringe benefit, dependent child means any son, stepson, daughter, or stepdaughter who is a dependent of the employee, or both of whose parents have died and who has not reached age 25. Treat a child of divorced parents as a dependent of both
parents.

Treat any use of air transportation by the parent of an employee as use by the employee. This rule does not apply to use by the parent of a person considered an employee because of item (3) or (4) above.

Retirement Planning Services

You may exclude from an employee's wages the value of any retirement planning advice or information you provide to your employee or his or her spouse if you maintain a qualified retirement plan as defined in section 219(g)(5) of the Internal Revenue Code. In addition to employer plan advice and information, the services provided may include general advice and information on retirement. However, the exclusion does not apply to services for tax preparation, accounting, legal, or brokerage services. You cannot exclude from the wages of a highly compensated employee retirement planning services that are not available on the same terms to each member of a group of employees normally provided education and information about the employer's qualified retirement
plan.

Transportation (Commuting) Benefits

This section discusses exclusion rules that apply to benefits you provide to your employees for their personal transportation, such as commuting to and from work. These rules apply to the following transportation benefits.

De minimis transportation benefits.

Qualified transportation benefits.

Special rules that apply to demonstrator cars and qualified nonpersonal use vehicles are discussed under
Working Condition Benefits, later in this section.

De Minimis Transportation Benefits

You can exclude the value of any
de minimis
transportation benefit you provide to an employee from the employee's wages. A
de minimis
transportation benefit is any local transportation benefit you provide to an
employee if it has so little value (taking into account how frequently you
provide transportation to your employees) that accounting for it would be
unreasonable or administratively impracticable. For example, it applies to
occasional transportation fare you give an employee because the employee is
working overtime if the benefit is reasonable and is not based on hours worked.

Qualified Transportation Benefits

A ride in a commuter highway vehicle between the employee's home and work
place.

A transit pass.

Qualified parking.

Qualified bicycle commuting reimbursement.

The exclusion applies whether you provide only one or a combination of these
benefits to your employees.

Qualified transportation benefits can be provided directly by you or through a bona fide reimbursement arrangement. However, cash reimbursements for transit passes qualify only if a voucher or a similar item that the employee can exchange only for a transit pass is not readily available for direct distribution by you to your employee. A voucher is readily available for direct distribution only if an employee can obtain it from a voucher provider that does not impose fare media charges or other restrictions that effectively prevent the employer from obtaining vouchers. See Regulations section 1.132-9(b)(Q&A 16–19) for more
information.

Generally, you can exclude qualified transportation fringe benefits from an employee's wages even if you provide them in place of pay. However, qualified bicycle commuting reimbursements cannot be excluded if the reimbursements are provided in place of pay. For information about providing qualified transportation fringe benefits under a compensation reduction agreement, see Regulations section 1.132-9(b)(Q&A
11–15).

Commuter highway vehicle.

A commuter highway vehicle is any highway vehicle that seats at least 6 adults (not including the driver). In addition, you must reasonably expect that at least 80% of the vehicle mileage will be for transporting employees between their homes and work place with employees occupying at least one-half the vehicle's seats (not including the
driver's).

Qualified parking.

Qualified parking is parking you provide to your employees on or near your business premises. It includes parking on or near the location from which your employees commute to work using mass transit, commuter highway vehicles, or carpools. It does not include parking at or near your employee's
home.

Qualified bicycle commuting reimbursement.

For any calendar year, the exclusion for qualified bicycle commuting reimbursement includes any employer reimbursement during the 15-month period beginning with the first day of the calendar year for reasonable expenses incurred by the employee during the calendar
year.

Reasonable expenses include:

The purchase of a bicycle, and

Bicycle improvements, repair, and storage.

These are considered reasonable expenses as long as the bicycle is regularly used for travel between the employee's residence and place of
employment.

Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2%
shareholder.

Relation to other fringe benefits.

You cannot exclude a qualified transportation benefit you provide to an employee under the
de minimis
or working condition benefit rules. However, if you provide a local
transportation benefit other than by transit pass or commuter highway vehicle,
or to a person other than an employee, you may be able to exclude all or part of
the benefit under other fringe benefit rules (de minimis, working condition, etc.).

If the value of a benefit for any month is more than its limit, include in the employee's wages the amount over the limit minus any amount the employee paid for the benefit. You cannot exclude the excess from the employee's wages as a
de minimis transportation benefit.

Tuition Reduction

An educational organization can exclude the value of a qualified tuition reduction it provides to an employee from the employee's
wages.

A tuition reduction for undergraduate education generally qualifies for this exclusion if it is for the education of one of the following individuals.

A current employee.

A former employee who retired or left on disability.

A widow or widower of an individual who died while an employee.

A widow or widower of a former employee who retired or left on
disability.

A dependent child or spouse of any individual listed in (1) through (4)
above.

A tuition reduction for graduate education qualifies for this exclusion only if it is for the education of a graduate student who performs teaching or research activities for the educational
organization.

Working Condition Benefits

This exclusion applies to property and services you provide to an employee so that the employee can perform his or her job. It applies to the extent the employee could deduct the cost of the property or services as a business expense or depreciation expense if he or she had paid for it. The employee must meet any substantiation requirements that apply to the deduction. Examples of working condition benefits include an employee's use of a company car for business, an employer-provided cell phone provided primarily for noncompensatory business purposes, and job-related education provided to an
employee.

This exclusion also applies to a cash payment you provide for an employee's expenses for a specific or prearranged business activity for which a deduction is otherwise allowable to the employee. You must require the employee to verify that the payment is actually used for those expenses and to return any unused part of the
payment.

For information on deductible employee business expenses, see
Unreimbursed Employee Expenses
in Publication
529, Miscellaneous Deductions.

The exclusion does not apply to the following items.

A service or property provided under a flexible spending account in which you agree to provide the employee, over a time period, a certain level of unspecified noncash benefits with a predetermined cash
value.

A physical examination program you provide, even if mandatory.

Any item to the extent the employee could deduct its cost as an expense for a trade or business other than your trade or
business.

Vehicle allocation rules.

If you provide a car for an employee's use, the amount you can exclude as a working condition benefit is the amount that would be allowable as a deductible business expense if the employee paid for its use. If the employee uses the car for both business and personal use, the value of the working condition benefit is the part determined to be for business use of the vehicle. See
Business use of your car
under
Personal versus Business Expenses
in chapter 1 of Publication 535. Also, see the special rules for certain demonstrator cars and qualified nonpersonal use vehicles discussed
later.

However, instead of excluding the value of the working condition benefit, you can include the entire annual lease value of the car in the employee's wages. The employee can then claim any deductible business expense for the car as an itemized deduction on his or her personal income tax return. This option is available only if you use the lease value rule (discussed in section 3) to value the
benefit.

Demonstrator cars.

Generally, all of the use of a demonstrator car by your full-time auto salesperson qualifies as a working condition benefit if the use is primarily to facilitate the services the salesperson provides for you and there are substantial restrictions on personal use. For more information and the definition of "full-time auto salesperson," see Regulations section 1.132-5(o). For optional, simplified methods used to determine if full, partial, or no exclusion of income to the employee for personal use of a demonstrator car applies, see Revenue Procedure 2001-56. You can find Revenue Procedure 2001-56 on page 590 of Internal Revenue Bulletin 2001-51 at
www.irs.gov/pub/irs-irbs/irb01-51.pdf.

Qualified nonpersonal use vehicles.

All of an employee's use of a qualified nonpersonal use vehicle is a working condition benefit. A qualified nonpersonal use vehicle is any vehicle the employee is not likely to use more than minimally for personal purposes because of its design. Qualified nonpersonal use vehicles generally include all of the following vehicles.

Clearly marked, through painted insignia or words, police, fire, and public safety
vehicles.

Unmarked vehicles used by law enforcement officers if the use is officially
authorized.

An ambulance or hearse used for its specific purpose.

Any vehicle designed to carry cargo with a loaded gross vehicle weight over 14,000
pounds.

Delivery trucks with seating for the driver only, or the driver plus a folding jump
seat.

A passenger bus with a capacity of at least 20 passengers used for its specific
purpose.

A pickup truck with a loaded gross vehicle weight of 14,000 pounds or less is a qualified nonpersonal use vehicle if it has been specially modified so it is not likely to be used more than minimally for personal purposes. For example, a pickup truck qualifies if it is clearly marked with permanently affixed decals, special painting, or other advertising associated with your trade, business, or function and meets either of the following
requirements.

It is equipped with at least one of the following items.

A hydraulic lift gate.

Permanent tanks or drums.

Permanent side boards or panels that materially raise the level of the sides of the truck
bed.

Other heavy equipment (such as an electric generator, welder, boom, or crane used to tow automobiles and other
vehicles).

It is used primarily to transport a particular type of load (other than over the public highways) in a construction, manufacturing, processing, farming, mining, drilling, timbering, or other similar operation for which it was specially designed or significantly
modified.

A van with a loaded gross vehicle weight of 14,000 pounds or less is a qualified nonpersonal use vehicle if it has been specially modified so it is not likely to be used more than minimally for personal purposes. For example, a van qualifies if it is clearly marked with permanently affixed decals, special painting, or other advertising associated with your trade, business, or function and has a seat for the driver only (or the driver and one other person) and either of the following items.

Permanent shelving that fills most of the cargo area.

An open cargo area and the van always carries merchandise, material, or equipment used in your trade, business, or
function.

Education.

Certain job-related education you provide to an employee may qualify for exclusion as a working condition benefit. To qualify, the education must meet the same requirements that would apply for determining whether the employee could deduct the expenses had the employee paid the expenses. Degree programs as a whole do not necessarily qualify as a working condition benefit. Each course in the program must be evaluated individually for qualification as a working condition benefit. The education must meet at least one of the following tests.

The education is required by the employer or by law for the employee to keep his or her present salary, status, or job. The required education must serve a bona fide business purpose of the
employer.

The education maintains or improves skills needed in the job.

However, even if the education meets one or both of the above tests, it is not qualifying education if it:

Is needed to meet the minimum educational requirements of the employee's present trade or business,
or

Is part of a program of study that will qualify the employee for a new trade or
business.

Outplacement services.

An employee's use of outplacement services qualifies as a working condition benefit if you provide the services to the employee on the basis of need, you get a substantial business benefit from the services distinct from the benefit you would get from the payment of additional wages, and the employee is seeking employment in the same trade or business of the employer. Substantial business benefits include promoting a positive business image, maintaining employee morale, and avoiding wrongful termination
suits.

Outplacement services do not qualify as a working condition benefit if the employee can choose to receive cash or taxable benefits in place of the services. If you maintain a severance plan and permit employees to get outplacement services with reduced severance pay, include in the employee's wages the difference between the unreduced severance and the reduced severance
payments.

You cannot exclude the value of parking (unless
de minimis), transit passes (if their monthly value exceeds $130 per month), or the use of consumer goods you provide in a product testing program from the compensation you pay to an independent contractor who performs services for
you.